Quarterly Market Review

Transcription

1 Quarterly Market Review First Quarter 2018

2 Quarterly Market Review First Quarter 2018 This report features world capital market performance and a timeline of events for the past quarter. It begins with a global overview, then features the returns of stock and bond asset classes in the US and international markets. The report also illustrates the impact of globally diversified portfolios and features a quarterly topic. Overview: Market Summary World Stock Market Performance World Asset Classes US Stocks International Developed Stocks Emerging Markets Stocks Real Estate Investment Trusts (REITs) Commodities Fixed Income Quarterly Topic: Sailing with the Tides 2

3 Market Summary Index Returns US Stock Market International Developed Stocks Emerging Markets Stocks Global Real Estate US Bond Market Global Bond Market ex US Q STOCKS BONDS -0.64% -2.04% 1.42% -5.79% -1.46% 0.94% Since Jan Avg. Quarterly Return 1.9% 1.5% 3.2% 2.5% 1.1% 1.1% Best 16.8% 25.9% 34.7% 32.3% 4.6% 4.6% Quarter Q Q Q Q Q Q Worst -22.8% -21.2% -27.6% -36.1% -3.0% -2.7% Quarter Q Q Q Q Q Q Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond ex US Market (FTSE WGBI ex USA 1 30 Years [hedged to USD]). S&P data copyright 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data MSCI 2018, all rights reserved. Bloomberg Barclays data provided by Bloomberg. FTSE fixed income 2018 FTSE Fixed Income LLC, all rights reserved. 3

4 World Stock Market Performance MSCI All Country World Index with selected headlines from Q Nasdaq Crests 7000 as Tech Giants Roar Into 2018 Oil Prices Hit Three- Year Highs on Growth, Geopolitics US Imposes New Tariffs, Ramping Up 'America First' Trade Policy Eurozone Inflation Continues to Lag, Despite Robust Economic Growth Global Bonds Swoon as Investors Bet on Inflation US Service-Sector Activity Hits Decade-High Dow Industrials Plunge into Correction Inflation Starts to Make a Comeback Home Sales Post Their Sharpest Drop in Three Years Dollar Drops to Lowest Level Since December 2014 China's Economy Grows Faster Than Expected on Strong Demand for Exports EU Agrees on Brexit Transition Terms but Ireland Issue Remains US to Apply Tariffs on Chinese Imports, Restrict Tech Deals Jan Feb Mar Fed Raises Rates and Signals Faster Pace in Coming Years Congress Passes Mammoth Spending Bill, Averts Shutdown US Stocks Surge, but Dow and S&P 500 Fall for the Quarter These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news. Graph Source: MSCI ACWI Index [net div.]. MSCI data MSCI 2018, all rights reserved. It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results. 4

5 World Stock Market Performance MSCI All Country World Index with selected headlines from past 12 months Short Term (Q Q1 2018) Eurozone Confidence Hits Postcrisis High Long Term Unemployment Rate Falls to 16-Year Low, But Hiring Slows Global Stocks Post Strongest First Half in Years, Worrying Investors US Companies Post Profit Growth Not Seen in Six Years Last 12 (2000 Q1 2018) months Dollar Hits Lowest Level in More than 2½ Years Household Debt Hits Record as Auto Loans and Credit Cards Climb New-Home Sales Growth Surges to 25-Year High US Factory Activity Hits 13-Year High Oil Hits Two-Year Highs as US Stockpiles Drop US Economy Reaches Its Potential Output for First Time in Decade Nasdaq Crests 7000 as Tech Giants Roar Into 2018 Trump Signs Sweeping Tax Overhaul Into Law UK, EU Reach Deal on Brexit Divorce Terms US Service-Sector Activity Hits Decade-High Inflation Starts to Make a Comeback US Imposes New Tariffs, Ramping Up 'America First' Trade Policy Fed Raises Rates and Signals Faster Pace in Coming Years Congress Passes Mammoth Spending Bill, Averts Shutdown 150 Mar-2017 Jun-2017 Sep-2017 Dec-2017 Mar-2018 These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news. Graph Source: MSCI ACWI Index [net div.]. MSCI data MSCI 2018, all rights reserved. It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results. 5

6 World Asset Classes First Quarter 2018 Index Returns (%) Looking at broad market indices, emerging markets outperformed developed markets, including the US, in the first quarter. The value effect was positive in emerging markets but negative in developed markets, including the US. Small caps outperformed large caps in developed markets, including the US, but underperformed in emerging markets. MSCI Emerging Markets Value Index (net div.) MSCI Emerging Markets Index (net div.) One-Month US Treasury Bills MSCI Emerging Markets Small Cap Index (net div.) Russell 2000 Index MSCI World ex USA Small Cap Index (net div.) Russell 3000 Index Russell 1000 Index S&P 500 Index MSCI All Country World ex USA Index (net div.) S&P Global ex US REIT Index (net div.) Bloomberg Barclays US Aggregate Bond Index MSCI World ex USA Index (net div.) MSCI World ex USA Value Index (net div.) Russell 2000 Value Index Russell 1000 Value Index Dow Jones U.S. Select REIT Index Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data MSCI 2018, all rights reserved. Dow Jones data copyright 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. S&P data copyright 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Bloomberg Barclays data provided by Bloomberg. Treasury bills Stocks, Bonds, Bills, and Inflation Yearbook, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). 6

7 US Stocks First Quarter 2018 Index Returns The US equity market posted a negative return for the quarter. Ranked Returns for the Quarter (%) Value underperformed growth across large and small cap indices. Small caps outperformed large caps. Small Growth Large Growth Small Cap Marketwide Large Cap Small Value Large Value World Market Capitalization US Period Returns (%) * Annualized 52% US Market $27.0 trillion Asset Class 1 Year 3 Years** 5 Years** 10 Years** Marketwide Large Cap Large Value Large Growth Small Cap Small Value Small Growth Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Marketwide (Russell 3000 Index), Large Cap (Russell 1000 Index), Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap (Russell 2000 Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index). World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. Russell 3000 Index is used as the proxy for the US market. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data MSCI 2018, all rights reserved. 7

8 International Developed Stocks First Quarter 2018 Index Returns In US dollar terms, developed markets outside the US underperformed the US and emerging markets during the quarter. Value underperformed growth in non-us developed markets across large and small cap indices. Small caps outperformed large caps in non-us developed markets. Ranked Returns (%) Local currency US currency Small Cap Growth Large Cap Value World Market Capitalization International Developed Period Returns (%) * Annualized 36% International Developed Market $18.9 trillion Asset Class 1 Year 3 Years** 5 Years** 10 Years** Large Cap Small Cap Value Growth Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Large Cap (MSCI World ex USA Index), Small Cap (MSCI World ex USA Small Cap Index), Value (MSCI World ex USA Value Index), and Growth (MSCI World ex USA Growth). All index returns are net of withholding tax on dividends. World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. MSCI World ex USA IMI Index is used as the proxy for the International Developed market. MSCI data MSCI 2018, all rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. 8

9 Emerging Markets Stocks First Quarter 2018 Index Returns In US dollar terms, emerging markets outperformed developed markets, including the US, during the quarter. Ranked Returns (%) Local currency US currency The value effect was positive in large cap indices but negative in small cap indices within emerging markets. Value Small caps underperformed large caps in emerging markets. Large Cap Growth Small Cap World Market Capitalization Emerging Markets Period Returns (%) * Annualized 12% Emerging Markets $6.3 trillion Asset Class 1 Year 3 Years** 5 Years** 10 Years** Large Cap Small Cap Value Growth Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Large Cap (MSCI Emerging Markets Index), Small Cap (MSCI Emerging Markets Small Cap Index), Value (MSCI Emerging Markets Value Index), and Growth (MSCI Emerging Markets Growth Index). All index returns are net of withholding tax on dividends. World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. MSCI Emerging Markets IMI Index used as the proxy for the emerging market portion of the market. MSCI data MSCI 2018, all rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. 9

10 Real Estate Investment Trusts (REITs) First Quarter 2018 Index Returns Non-US real estate investment trusts outperformed US REITs in the first quarter. Ranked Returns (%) Global REITs (ex US) US REITs Total Value of REIT Stocks 44% World ex US $477 billion 253 REITs (23 other countries) 56% US $618 billion 101 REITs Period Returns (%) * Annualized Asset Class 1 Year 3 Years** 5 Years** 10 Years** Dow Jones US Select REIT Index S&P Global ex US REIT Index (net div.) Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Number of REIT stocks and total value based on the two indices. All index returns are net of withholding tax on dividends. Total value of REIT stocks represented by Dow Jones US Select REIT Index and the S&P Global ex US REIT Index. Dow Jones US Select REIT Index used as proxy for the US market, and S&P Global ex US REIT Index used as proxy for the World ex US market. Dow Jones data copyright 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. S&P data copyright 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. 10

11 Commodities First Quarter 2018 Index Returns The Bloomberg Commodity Index Total Return declined 0.40% during the first quarter. The grains complex led performance, with soybean meal returning 20.24% and corn gaining 8.30%. Energy also advanced, with WTI crude oil returning 8.40% and Brent oil advancing 4.99%. Softs was the worst-performing complex, with sugar and coffee declining by 18.19% and 7.96%, respectively. Period Returns (%) * Annualized Asset Class 1 Year 3 Years** 5 Years** 10 Years** Commodities Ranked Returns for Individual Commodities (%) Soybean meal WTI crude oil 8.40 Corn 8.30 Soybeans 7.46 Kansas wheat 6.02 Brent oil 4.99 Nickel 3.79 Wheat 2.81 Cotton 2.20 Gold 0.56 Unleaded gas 0.49 Heating oil Zinc Soybean oil Silver Natural gas Coffee Copper Live cattle Lean hogs Aluminum Sugar Past performance is not a guarantee of future results. Index is not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Commodities returns represent the return of the Bloomberg Commodity Total Return Index. Individual Commodities are sub-index values of the Bloomberg Commodity Total Return Index. Data provided by Bloomberg. 11

12 Fixed Income First Quarter 2018 Index Returns Interest rates increased in the US during the first quarter. The yield on the 5-year Treasury note rose 36 basis points (bps), ending at 2.56%. The yield on the 10-year Treasury note increased 34 bps to 2.74%. The 30-year Treasury bond yield rose 23 bps to finish at 2.97%. On the short end of the yield curve, the 1-month Treasury bill yield increased 35 bps to 1.63%, while the 1-year Treasury bill yield rose 33 bps to 2.09%. The 2-year Treasury note finished at 2.27% after a yield increase of 38 bps. In terms of total return, short-term corporate bonds dipped 0.38% and intermediate corporates fell 1.50%. Short-term municipal bonds advanced 0.10%, while intermediate munis declined 1.29%. Revenue bonds performed in-line with general obligation bonds, declining 1.19% and 1.20%, respectively. US Treasury Yield Curve (%) Yr 5 Yr 10 Yr Period Returns (%) 30 Yr 3/31/2017 3/29/ /29/2017 Bond Yields across Issuers (%) Year US Treasury Municipals AAA-AA Corporates 3.88 A-BBB Corporates * Annualized Asset Class 1 Year 3 Years** 5 Years** 10 Years** Bloomberg Barclays Municipal Bond Index Bloomberg Barclays US Aggregate Bond Index Bloomberg Barclays US Government Bond Index Long Bloomberg Barclays US High Yield Corporate Bond Index Bloomberg Barclays US TIPS Index FTSE World Government Bond Index 1-5 Years FTSE World Government Bond Index 1-5 Years (hedged to USD) ICE BofAML 1-Year US Treasury Note Index ICE BofAML 3-Month US Treasury Bill Index One basis point equals 0.01%. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Yield curve data from Federal Reserve. State and local bonds are from the S&P National AMT-Free Municipal Bond Index. AAA-AA Corporates represent the Bank of America Merrill Lynch US Corporates, AA-AAA rated. A-BBB Corporates represent the Bank of America Merrill Lynch US Corporates, BBB-A rated. Bloomberg Barclays data provided by Bloomberg. US long-term bonds, bills, inflation, and fixed income factor data Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). FTSE fixed income indices 2018 FTSE Fixed Income LLC, all rights reserved. ICE BofAML index data 2018 ICE Data Indices, LLC. 12

13 Sailing with the Tides First Quarter 2018 Embarking on a financial plan is like sailing around the world. The voyage won t always go to plan, and there ll be rough seas. But the odds of reaching your destination increase greatly if you are prepared, flexible, patient, and well-advised. A mistake many inexperienced sailors make is not having a plan at all. They embark without a clear sense of their destination. And once they do decide, they often find themselves lost at sea in the wrong boat with inadequate provisions. Likewise, in planning an investment journey, you need to decide on your goal. A first step might be to consider whether the goal is realistic and achievable. For instance, while you may long to retire in the south of France, you may not be prepared to sacrifice your needs today to satisfy that distant desire. Once you are set on a realistic destination, you need to ensure you have the right portfolio to get you there. Have you planned for multiple contingencies? What degree of bad weather can your plan withstand along the way? Key to a successful voyage is a good navigator. A trusted advisor is like that, regularly taking coordinates and making adjustments, if necessary. If your circumstances change, the advisor may suggest you replot your course. As with the weather at sea, markets can be unpredictable. A sudden squall can whip up waves of volatility, tides can shift, and strong currents can threaten to blow you off course. Like a seasoned sailor, an experienced advisor will work with the conditions. Once the storm passes, you can pick up speed again. Just as a sturdy vessel will help you withstand most conditions at sea, a well-diversified portfolio can act as a bulwark against the sometimes tempestuous conditions in markets. Circumnavigating the globe is not exciting every day. Patience is required with local customs and paperwork as you pull into different ports. Likewise, a lack of attention to costs and taxes is the enemy of many a long-term financial plan. Distractions can also send investors, like sailors, off course. In the face of hot investment trends, it takes discipline not to veer from your chosen plan. Like the sirens of Greek mythology, media pundits can also be diverting, tempting you to change tack and act on news that is already priced in to markets. A lack of flexibility is another impediment to a successful investment journey. If it doesn t look as though you ll make your destination in time, you may have to extend your voyage, take a different route to get there, or even moderate your goal. The important point is that you become comfortable with the idea that uncertainty is inherent to the investment journey, just as it is with any sea voyage. That is why preparation and planning are so critical. While you can t control every outcome, you can be prepared for the range of possibilities and understand that you have clear choices if things don t go according to plan. If you can t live with the volatility, you can change your plan. If the goal looks unachievable, you can lower your sights. If it doesn t look as if you ll arrive on time, you can extend your journey. Of course, not everyone s journey is the same. Neither is everyone s destination. We take different routes to different places, and we meet a range of challenges and opportunities along the way. But for all of us, it s critical that we are prepared for our journeys in the right vessel, keep our destinations in mind, stick with the plans, and have a trusted navigator to chart our courses and keep us on target. Adapted from Sailing with the Tides, Outside the Flags by Jim Parker, March Past performance is no guarantee of future results. There is no guarantee an investing strategy will be successful. Diversification does not eliminate the risk of market loss. All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. 13